The Indian government has been implementing various measures to manage the taxation on crude oil and its byproducts like petrol, diesel, and aviation turbine fuel (ATF). The tax rates are reviewed every fortnight, based on the average oil prices in the previous two weeks.
On the fortuitous day of July 1st, 2021, India inaugurated the implementation of levies on windfall profits, marking the beginning of a growing global trend of nations that impose taxes on the extravagant earnings of energy corporations. During this particular occasion, the government enforced an export tariff of Rs 6 per litre ($12 per barrel) on both petrol and aviation turbine fuel, and Rs 13 a litre ($26 a barrel) on diesel. Moreover, the administration levied a windfall profit tax of Rs 23,250 per tonne ($40 per barrel) on the production of domestic crude oil.
Initially, the export duty on gasoline was eliminated, resulting in no charge for gasoline exports. On March 4, 2022, the administration significantly decreased the bonus duty on diesel exports to a record-low of Rs 0.50 per litre. Nevertheless, the most significant change occurred on March 29, 2022, when the government eliminated all windfall taxes on crude oil, reducing the windfall tax on domestically produced crude oil to zero in India.
Understanding the concept of windfall profit tax is crucial. The government levies a tax on oil producers’ windfall profits made on any price above a threshold of $75 per barrel
In addition, the tariff on fuel exports is based on the margins or cracks that refiners obtain on overseas shipments. These margins are primarily the difference between the realized international oil price and the cost. Therefore, the export duty on diesel is based on the difference between the international price of diesel and its production cost in India.
The modus operandi of the Indian government with regard to the imposition of levies on crude oil and its derivatives is rooted in the principle of striking a balance between the interests of the consumers and the producers. The paramount aim of the government is to ensure that the consumers have access to the commodities at a justifiable price while the producers are able to garner a commensurate return on investment. As a result, the tax rates undergo periodic reviews every fourteen days to ensure that they remain congruous with the flux in market conditions.
In conclusion, the Indian government has been implementing various measures to manage the taxation on crude oil and its byproducts. The tax rates are reviewed every fortnight based on the average oil prices in the previous two weeks. Windfall profit taxes are levied on oil producers if they make any profits above a threshold of $75 per barrel. Moreover, the export duty on diesel is based on the difference between the international price of diesel and the cost of producing it in India. The government’s measures aim to balance the interests of both the consumers and the producers.
